2019 (9) TMI 458 - AT - Income Tax

Capital gain on sale of land - LTCG OR STCG - Period of holding - delay in non-registration of the sale deed and possession of the property - HELD THAT - Assessee in the instant case has fulfilled all the conditions specified in the agreement but the seller failed to do so for the reasons best known to him. Accordingly, we conclude that the delay in non-registration of the sale deed and possession of the property has occurred for the reasons beyond the control of the assessee i.e. due to default of the seller of the property. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability. In our humble opinion, the doctrine of impossibility of performance applies in this case. Due to uncontrollable circumstances, the performance of the obligation as specified under the agreement became impossible to perform within the time for the assessee. ' The assessee cannot be penalized for the delay in the registration of the property in the given facts and circumstances. Hence the assessee is entitled to reckon the period of holding from the date of the registration of the agreement i.e. 15th February 2006. Execution of the sale deed in pursuance to the order of the court would relate back to the original agreement to sale as discussed above. Hence the assessee is entitled for the claim of index cost of acquisition being the holding period more than 36 months. Therefore the ground of appeal of the assessee is allowed. Denial of deduction of cost of improvement - admission of additional ground - HELD THAT - Admittedly, the issue raised by the assessee in the additional ground of appeal relates to the factual dispute which was discussed in the assessment order. But the impugned issue was agitated by the assessee before the authorities below. As such the authorities below did not entertain the claim of the assessee on the reasoning that the assessee failed to furnish the supporting documents. This fact can be verified from the order of the authorities below. Therefore we are of the view that the assessee being aggrieved is entitled to raise the additional ground in the instant case. Accordingly, we are inclined to admit the additional ground of appeal raised by the assessee. Claim of the assessee was rejected by the authorities below in view of the fact that the supporting documents were not furnished. Therefore, in the interest of justice and fair play, we are inclined to refer the matter to the file of the AO for fresh adjudication as per the provisions of law.

Issues Involved:
1. Classification of capital gain on sale of land as short-term or long-term.
2. Deduction of cost of stamp duty and other expenses incurred for purchasing the land.

Issue-wise Detailed Analysis:

1. Classification of Capital Gain on Sale of Land:
The primary issue revolves around whether the capital gain on the sale of land should be treated as short-term or long-term. The assessee declared a long-term capital gain of ?2,86,64,441/- on the sale of land, which was sold on 31-08-2012 for ?3,11,00,000/-.

The AO, upon verification, found that the property was purchased on 16-03-2012, and thus held for less than three years. Consequently, the AO treated the gain as short-term capital gain. The assessee argued that the right to the property was acquired on 15-02-2006 through an agreement, and the delay in registration was due to the seller's refusal, which was later resolved by a court order on 07-01-2012. The assessee cited judgments from Bombay High Court and Andhra Pradesh High Court to support his claim.

The AO rejected the assessee’s contention, stating that the conditions under section 53A of the Transfer of Property Act were not met, as the possession was not acquired until the court order in 2012. The AO computed the short-term capital gain as ?3,05,63,800/-.

The CIT(A) upheld the AO's decision, stating that the transfer did not occur within the meaning of section 2(47) of the Income Tax Act, read with section 53A of the Transfer of Property Act.

Upon appeal, the Tribunal considered the facts and found that the delay in registration was due to the seller's default, which was beyond the assessee's control. The Tribunal held that the doctrine of impossibility of performance applies, and the assessee should not be penalized for the delay. The Tribunal concluded that the execution of the sale deed in 2012 should relate back to the original agreement in 2006, thus treating the property as a long-term asset. The assessee was entitled to claim the index cost of acquisition, and the ground of appeal was allowed.

2. Deduction of Cost of Stamp Duty and Other Expenses:
The second issue pertains to the deduction of ?18,40,850/- as cost of improvement. The assessee claimed this amount while computing the capital gain, stating it was incurred for stamp duty and other expenses related to the land purchase.

The AO disallowed this claim, as the assessee failed to provide evidence linking these expenses to the property. The CIT(A) confirmed the AO's decision, noting the lack of substantiating evidence.

During the appeal, the assessee submitted that the expenses were indeed related to the land purchase and requested an opportunity to furnish supporting documents. The Tribunal admitted the additional ground of appeal and, in the interest of justice, remanded the matter back to the AO for fresh adjudication. The assessee was granted the liberty to submit the necessary evidence to justify the claim.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes. The capital gain on the sale of land was treated as long-term, considering the delay in registration was beyond the assessee's control. The issue regarding the deduction of improvement costs was remanded to the AO for fresh adjudication, allowing the assessee to provide supporting documents.

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